Senate Moves Forward with Online Sales Tax

WASHINGTON – The U.S. Senate voted 74-20 on Monday to end debate on a bill that would allow states to collect online sales tax.

The Marketplace Fairness Act would give states the power to collect taxes on purchases made online by consumers in their states.

Analysts say the vote to end debate suggests supporters of the bill are likely to see it win approval in the Senate this week, but they add that the bill’s passage in the House of Representatives is not a done deal.

The Direct Marketing Association (DMA) has been urging lawmakers not to act hastily on the bill. In a letter to senators, the DMA says the bill “never had a full vetting … in a Senate committee. The bill makes complex changes to the economy, and the simplistic headlines have subsumed the substance of the issue.”

An excerpt from the DMA’s letter, dated April 18 from Jerry Cerasale, senior vice president of government affairs, to the Senate follows:

“… It seems unnecessary to rush into consideration of an Internet Sales Tax law without first going through regular order and giving all stakeholders an opportunity to explain their concerns. Allowing state interference in interstate commerce should not be done lightly or without full deliberation of the consequences. Therefore, states should be required to enact meaningful simplifications and safeguards as a trade for Congressional permission on requiring remote sellers to become tax collectors for every state. We respectfully ask that S. 743 be referred to committee instead of to the floor next week.”

Senate Finance Committee Chairman Max Baucus (D-MT) said the bill should have gone through committee before coming to the senate floor, but last week Senate Majority Leader Harry Reid (D-NV) decided to call up the bill anyway.

Senators in states without a sales tax opposed the bill Monday because it would burden retailers in their states by forcing them to collect taxes for other state governments.

For instance, Sen. Jeanne Shaheen (D-NH) said she strongly opposes the bill and says it would hurt small businesses that rely on the Internet to tap into growing markets, expand their operations and create jobs. “Mandating that small businesses collect sales taxes for an additional 46 states and 9,600 tax jurisdictions would overload these entities with bureaucracy and red tape,” Shaheen said.

The bill would exempt small businesses that earn less than $1 million annually from out-of-state sales.

Today, states can only collect sales taxes from retailers that have a physical presence in their state. People who order items online from another state are supposed to declare the purchases on their tax forms, but few do or are even aware of the law.

Sen. Dick Durbin (D-IL), the lead co-sponsor, said the bill is only fair to the businesses across America, if they are required to collect sales tax on their sales, that those competing with them ought to do the same.

Supporters call it a “states’ rights bill” because it would let states – many of which are battling large budget deficits – collect funds they need for state programs. “Right now, it’s not only unfair to small businesses, but it’s costing states and localities millions in tax revenue,” said Sen. Mike Enzi (R-WY), the bill’s lead sponsor.

Last month, the Senate passed a non-binding budget resolution on a 75-24 vote supporting the bill’s language. Most opposition comes from conservative GOP members and lawmakers from three states that don’t have sales tax: Montana, New Hampshire and Oregon. Delaware also doesn’t have a sales tax, but its senators didn’t oppose the bill.

The National Retail Federation and the Retail Industry Leaders Association also have backed the legislation.